UCF-ACG2071 Study Guide Test 2B

# UCF-ACG2071 Study Guide Test 2B - y = total v = variable...

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y = total v = variable cost per unit x = volume of activity f = fixed costs ACG EXAM 2 STUDY GUIDE CH 6 Cost Behavior Understand key characteristics of costs and their graphs o Variable costs per unit remain constant, variable cost change in proportion to changes in volume . y = vx o Fixed costs stay constant. y = f o Total Mixed costs increase with volume. y = vx + f Relevant range – what is it? o Relevant Range: Normal Operating range of activity that variable cost per unit and fixed cost remain unchanged/constant (total fixed costs & variable cost per unit) Use cost equations to describe and predict costs (fixed, variable, mixed) o Fixed: o Variable: o Mixed:

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Step costs, curvilinear costs o Step costs: are fixed over a small range then jump to a new level with moderately small changes in volume o Curvilinear costs: have no set pattern and are not a straight line Account Analysis o Managers use judgment to determine each general ledger account as a variable and fixed or mixed cost Scatter Plots (pg 324) o historical cost data on the y-axis and volume data on x-axis with points, helps visualize the relationship Outliers: abnormal data points that stands out from the rest High Low Method o Draws a line on a scatter plot graph through two date points; the highest and lowest Step 1: find slope v= change in cost/change in volume o y(high) – y(low) x(high) – x(low) =\$/unit Step 2 : find vertical intercept ( find f ) o total mix (y) = vx + f
o can use A or B ’s data Step 3: re-write cost behavior equation o y = vx + f Regression – just know what it is and be able to interpret reports like Exhibit 6-15 (R squared and cost function) o Intercept coefficient: vertical intercept o X Variable 1 coefficient: slope o R square: how good the line fits the scatter plot; ranges from 0-1. Close to 0: no relationship between units & costs = points scattered randomly Exactly 1: perfect relationship = perfect line through every single data point Absorption costing : all manufacturing-related costs whether fixed or variable, are “absorbed” into the costs of the product. *** Required and accepted by GAAP

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